Ground-breaking deal sees London borough raise £75m to fund capital expenditure

---

Redbridge Council has raised £75m to fund capital expenditure through the first deferred RPI-linked bond issued by a UK local authority. The bond was structured, arranged and placed by the Council’s independent funding advisors, TradeRisks.

The bond has a coupon of 0% and is repaid in 48 annual instalments from 2022 to 2069 of 1.75% of the bond proceeds. These payments increase annually with RPI subject to a maximum of 5% per annum, providing protection against high inflation scenarios.

The bond was issued at a premium over its £63.9m value, giving a negative real yield of -0.62% or 126bps above index-linked gilts. Assuming 2.5% RPI, the effective interest rate is 1.87%, 118bps below the PWLB certainty rate at the date the bonds were priced.

The bond proceeds are received over 24 months in line with the Council’s funding needs and therefore reduce cost of carry.

Antoine Pesenti, Senior Managing Director at TradeRisks commented “This is a ground breaking transaction in the local authority funding market that demonstrates how the capital markets can provide tailored funding to match a council’s capital programme and budget projections. Our funding solution has allowed Redbridge to secure debt which is RPI-linked and which has a deferred structure, both features which are not available from the PWLB, and at a price significantly cheaper than PWLB. The debt exactly replicates a sale and leaseback structure, but at a much lower cost.”